When you go out to buy something today, do you ever think about future value? Almost no one does. The prevalent attitude today is that you spend money on something and it’s gone, never to come back. Whatever you bought will just be thrown away or sold at a very low cost sometime down the line. Good examples of depreciating assets bought new are:
- Video Games
All of those items will eventually be worth less than 10% of what you paid for them new. There are some exceptions but they are few and far between. There is a way though that you can have fun and not lose so much money, you buy non-depreciating assets.
What are non-depreciating assets?
Non-depreciating assets are objects that hold their value or rise over time. What are some examples of non-depreciating assets?
- Pinball machines
- Classic cars
- Neon Signs
- Used Top of Line Game room equipment
- Quality used tools
- Houses in most areas
In general, what makes a non-depreciating asset is that in 5 to 10 years, it’s going to be worth the same or more than what you paid for it today. What makes this powerful is that your money isn’t gone after you spend it, it’s simply reallocated.
Let’s go over a quick example.
Example #1, Classic Car vs New Car
So you and a friend decide that you’d like to have a fun car for the weekend. You’ve narrowed it down to a new mustang or a classic 60’s mustang. Each will cost you $30k. You buy the classic car, he buys the new one.
After 5 years, his mustang is probably worth $10k or less, depending on condition. Your classic mustang though is probably still worth $30k or possibly even more. So basically, you’ve had a fun item for 5 years and you haven’t lost $20k in depreciation for it just sitting in your garage. You can now sell your car for what you have in it, and you’ve lost nothing over that time. Pretty powerful, eh?
How can I harness this?
It’s not even about buying non-depreciating assets all the time, it’s more about limiting the amount of depreciation you’re getting hit with every year by buying smarter. A new fridge is going to go from $2k to $100 over 15 years, why not buy a 2 year old used fridge and go from $600 to $100 over that same time? That $1400 you saved can be a huge help in saving for the future. If you do that for all of your major purchases, you can shave so much depreciation off that you can save a ton of money every year.
In my example above I talked about the classic vs new car, a different way to approach it would be to just buy a 2 year old mustang for $20k and save $10k in depreciation right up front. Depreciation money doesn’t come back, so you’ve got to try and contain it whenever possible.
Buying used and cutting out the depreciation hit can save you up to 50% on most purchases. Even just simple things like video games, if you buy them used off ebay after a few weeks they’ll usually be down 25% or more. I buy all of mine with the Gamer’s Club from Best Buy (unfortunately, that’s been discontinued, so when mine expires I’ll be back to buying used). After I’m done, I sell them back on Ebay to keep my expenses to a minimum.
Step by Step Process to Save
I’m going to outline the step by step process to save money here.
- Find the item you would like to buy
- Search for 2 year old versions of that same item on craigslist or ebay
- If there’s a significant difference (50%) consider going with the used version.
This also applies to determining whether something is a non-depreciating asset or not.
- Find the item online
- See if you can determine if that item is more expensive now than it was 2 years ago
- If the item is the same price or more than it was new, then it is likely a longer term non-depreciating asset
Hopefully this guide has helped you a little with your buying decisions. Finding items that retain their value really helps build your wealth, and finding ways to reduce depreciation on everyday items can be a windfall.